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6Casalegno C. – Cerruti E. – Pellicelli M. / Economia Aziendale Online 2000 Web 4 (2009) 1-35ness transformation, taking into account the levels of rod (return on debt) and the optimumfinancial lever;e) this data is used to quantify the invested capital requirements; the shares covered byE and D (equity and debt, respectively) are determined; the actual value of wacc is calculated;f) capital is raised and Invested Capital, IC, is formed; this is a condition for achievingthe economic transformation;g) the economic transformation produces value for the client (maximum quality/priceratio), thereby obtaining the Operating Income (OI) that is used to repay the debt andequity;h) the three indicators for the efficiency of the financial transformation, roi, roe androd – which are the bases for the calculation of EVA and the Economic Value of theFirm (EVF) – are compared to the managerial objectives to check that the levels ofEVA and EVF perform satisfactorily in the business transformation;i) Value Based Management acts at the managerial transformation level, since it musttranslate strategic inputs and the desired value performance into a coherent organizationalsystem that can be achieved by and function through ascertainable value driversas well as be continually monitored. A bottom-up view of the model reveals that theproductive, economic and financial transformations are instruments for the businesstransformation, whose efficiency is measured by its capacity to produce value in termsof EVA and EVF.The only approach possible for capitalistic firms is to continually increase businessperformance, and thus increase the value produced. The entire strategy must be directedat the production of value.For this reason the fundamental business objectives, represented in the model byMO, are typical objectives of financial efficiency; that is, they:1) balance the financial structure: der objective;2) optimise the cost of equity, “ce”, and cost of debt, “cd”, and thus reduce wacc, thefundamental driver of EVA;3) try, in short, to achieve a roe > ce that produces shareholder value;4) set appropriate roi objectives to sustain the production of value.The portfolio strategies, along with the EVA and EVF objectives they seek toachieve, become the inputs for the managerial transformation, which aims at organizationalefficiency by transforming the strategies into achievable plans and programs andby monitoring their actual attainment as a condition for the achievement of the desiredlevels of value production.Also significant are the contributions by Cornelius and Davies (1997) proposing theintroduction of Value Based Management in organizations at two different stages: thefirst stage requires the construction of a framework of reference for objectives and for
Casalegno C. – Cerruti E. – Pellicelli M. / Economia Aziendale Online 2000 Web 4 (2009) 1-35 7organizational culture and structure; the second stage must develop an integrated systemfor planning, resource allocation, performance measures, and management pay.Fig. 1 – The firm as a cognitive system for efficient transformationSource: Mella’s model (Mella, Pellicelli M., 2008).
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